In all eukaryotes, CAP-Gly proteins control important cellular processes. The molecular mechanisms underlying the functions of CAP-Gly domains, however, are still poorly understood. Here we use the complex formed between the CAP-Gly domain of p150(glued) and the C-terminal zinc knuckle of CLIP170 as a model system to explore the structure-function relationship of CAP-Gly-mediated protein interactions. We demonstrate that the conserved GKNDG motif of CAP-Gly domains is responsible for targeting to the C-terminal EEY/F sequence motifs of CLIP170, EB proteins and microtubules. The CAP-Gly-EEY/F interaction is essential for the recruitment of the dynactin complex by CLIP170 and for activation of CLIP170. Our findings define the molecular basis of CAP-Gly domain function, including the tubulin detyrosination-tyrosination cycle. They further establish fundamental roles for the interaction between CAP-Gly proteins and C-terminal EEY/F sequence motifs in regulating complex and dynamic cellular processes.